Via a Danske client note on the Australian dollar
- the bank like the AUD higher "in the absence of new shocks"
- has the potential to move higher
- AUD/USD is undervalued around current spot
Danske says other currencies are also undervalued against an "overvalued" US dollar. Warn that over/under valuations can persist for some time though.
More:
- long AUD/USD in our view remains a key recovery trade: its China/cyclical/commodity features coupled with a strong valuation argument makes it an attractive global reflation trade candidate
- inflation differences across countries may emerge in the aftermath of COVID-19 and also have the potential to shift real exchange rates over time
- the medium term risk of a broad-based global reflation trend is well hedged with long AUD/USD
